Understanding Social Security and Medicare America’s Retirement Safety Net
Social Security and Medicare are cornerstones of what is sometimes called America’s “safety net.” These federal programs were never intended to fund a lavish retirement lifestyle or the most expensive health-care services. Rather, they were created to provide a basic level of support for older people who have left the workforce. Although the programs have been expanded to include other beneficiaries, their primary focus is on older Americans. Despite the limited nature of Social Security and Medicare, the benefits can be invaluable. Whether you are already eligible or will be in the future, it might be wise to consider the basic options and potential strategies that could help you obtain the benefits that are most appropriate for your personal situation. Here’s a brief overview of both programs. Most of the information contained herein comes from the Social Security Administration and the Centers for Medicare & Medicaid Services. More information can be found at socialsecurity.gov and medicare.gov.
Social Security Supplementary Income for Older Americans A Brief History The Old-Age, Survivors, and Disability Insurance (OASDI) program— the official name of Social Security —was created as part of Franklin Delano Roosevelt’s New Deal legislation during the Great Depression. It was signed into law in 1935 and is now the federal government’s largest single program. Social Security benefits were intended to “insure the essentials” for retired older workers by paying them a steady, modest income. The programwas designed to be a pay-as-you-go system, which means payroll taxes collected fromworkers and employers are used to fund payments for current retirees. Over the years, Social Security has been expanded to include dependents and survivors of retired workers, disabled workers, and dependents of disabled workers. In December 2024, the combined OASDI program provided about $1.3 trillion in benefits to more than 68 million people: Social Security provides a guaranteed income stream, longevity protection, spousal protection, and even some inflation protection. 51.8 million retired workers & 2.6 million dependents 5.8 million survivors of deceased workers 7.2 million disabled workers & 1.1 million dependents Source: Social Security Administration, 2024
16.5 1950 2.4 2035 2.7 2024 The Bottom Line Active workers per Social Security recipient Source: Social Security Administration, 2024 Challenges of an Aging Population Social Security is largely a pay-as-you-go systemwith today’s workers (and employers) paying for today’s retirees through the collection of payroll taxes. These taxes (and other income) are deposited in the Social Security trust funds and are then used to cover benefits. As the population ages and birth rates decline, the ratio of workers (paying into Social Security) to retirees (receiving benefits) continues to fall. This means that payroll taxes collected from today’s workers are no longer enough to fully fund Social Security retirement benefits. Consequently, the surplus that was built up in the Social Security trust funds in previous years is now being tapped to fully cover benefits, a trend that is projected to continue unless Congress makes changes to strengthen the program and address projected shortfalls. Social Security’s Board of Trustees project that Social Security should have sufficient resources to pay 100% of scheduled retiree benefits until 2034. Once the trust fund reserves are depleted, payroll tax revenue alone would be sufficient to cover only about 83% of scheduled retiree benefits.
$1,976 Average monthly retired worker benefit (in 2025) $1,832 Average monthly survivor benefit (in 2025) Facts About Social Security Eligibility Workers who have accumulated a minimum of 40 work credits, which is 40 fiscal quarters or about 10 years of work, are entitled to receive Social Security retirement benefits. The benefit is based on an average of the highest 35 years of earnings in the workforce (during which payroll taxes were paid). Spouses of eligible workers can collect Social Security spousal benefits regardless of whether they worked or not. Even the unmarried ex-spouse of an eligible worker may be entitled to Social Security benefits based on the former spouse’s work record if they were married for at least 10 years. Claiming Ages You are eligible to receive your full Social Security benefit (Primary Insurance Amount) when you reach your “full retirement age.” In the past, this was age 65, but now it ranges from 66 to 67 depending on year of birth (see chart on facing page). The earliest you can claim retired worker benefits is age 62, but if you do so the monthly benefit is permanently reduced. For each month you wait to claim benefits after age 62, your benefit increases slightly, so that at full retirement age you are entitled to 100% of your full retirement benefit. You can delay claiming Social Security up to age 70. For each year you wait after reaching full retirement age, your benefit will increase by about 8%.
$1,580 Average monthly disabled worker benefit (in 2025) 51% Percentage of eligible workers who claim benefits before reaching full retirement age Source: Social Security Administration, 2024 How Filing Early or Later Affects Benefits Year of birth Full retirement age Retired worker benefit % if claimed at age 62 Retired worker benefit % if claimed at age 70 Spousal benefit % if claimed at age 62* 1955 66 and 2 months 74.17% 130.67% 34.59% 1956 66 and 4 months 73.33% 129.33% 34.17% 1957 66 and 6 months 72.50% 128.00% 33.75% 1958 66 and 8 months 71.67% 126.67% 33.34% 1959 66 and 10 months 70.83% 125.33% 32.92% 1960 & later 67 70.00% 124.00% 32.50% *The maximum spousal benefit, if claimed at full retirement age, is 50% of the worker’s Primary Insurance Amount.
If you are eligible for both your own worker benefit and a spousal benefit when you file for Social Security, you will be “deemed” to be filing for both and will receive the higher of the two amounts. If you apply for your worker benefit and later qualify for a higher combined benefit (when your spouse claims Social Security), you will receive an additional amount automatically. Survivor benefits, however, are not affected by the deemed filing rules, so an eligible widow or widower can switch from a spousal or worker benefit to a survivor benefit (or vice versa). Spousal Benefits Spouses are entitled to receive a benefit based on their own earnings history or a spousal benefit that could be as high as 50% of their spouse’s Primary Insurance Amount. To receive a spousal benefit, you must be age 62 or older, you must have been married for at least one year, and your spouse must have claimed or be receiving Social Security retirement benefits. A spousal benefit claimed at your full retirement age would be equal to one-half of your spouse’s Primary Insurance Amount. If you elect to receive a spousal benefit before reaching full retirement age, you will receive a permanently reduced benefit, unless a qualifying child is being cared for. The reduction amount is based on your age when claiming the spousal benefit. An unmarried, divorced spouse may also be eligible to collect a spousal benefit based on a former spouse’s work record if they were married for at least 10 years. These benefits have no effect on the former spouse’s benefits or on his or her subsequent spouse’s benefits.
To claim a survivor benefit, you must have been married for at least nine months (or for at least 10 years if you are a surviving divorced spouse). The survivor benefit amount is based on the earnings record of the spouse who died. The more the worker paid into the program, the higher the survivor benefit would be. Unlike spousal benefits, survivor benefits reflect any delayed retirement credits the deceased spouse may have earned. You are eligible for a reduced survivor benefit as early as age 60 or for a full survivor benefit (100% of the deceased’s worker benefit amount) once you reach full retirement age. Surviving disabled spouses and those with young children may have additional options. Warning: If you remarry before reaching age 60, you will forfeit your late spouse’s Social Security benefits while you are married. If you remarry after age 60, you continue to qualify for survivor benefits based on your deceased spouse’s work record. Survivor Benefits Widows and widowers have dual entitlements under Social Security: benefits based on their own earnings history or survivor benefits based on the deceased spouse’s earnings record.
Retroactive Benefits If you postpone claiming Social Security retirement benefits past your full retirement age, you can request a lump-sum payment for up to 6 months of retroactive benefits. However, your monthly benefit will be reduced for the rest of your life, because you will forgo the delayed retirement credits earned during that period. Benefits paid to your survivors may also be lower. “Do Over” or “Reset” If you regret taking a permanently reduced Social Security benefit before reaching full retirement age, you can apply to withdraw benefits within 12 months of making the original claim for benefits. However, you must repay all benefits you and your spouse have received. This option is available only once in your lifetime. “Start, Stop, Restart” If you have already started receiving benefits and would prefer to stop them in order to receive higher benefits later, you can ask Social Security to suspend future benefits and restart them at a later date. To request this action, you must have reached full retirement age. Keep in mind that your spouse cannot receive spousal benefits during the time when your benefits are suspended. Social Security Claiming Strategies
3.71% Average annual cost-of-living adjustment (COLA) since 1975. Inflation was too low to trigger a COLA for 2010, 201 1, and 2016. The COLA for 2025 was 2.5%. Source: Social Security Administration, 2024
How Working Affects Benefits If you plan to continue working, it may be wise to delay claiming Social Security benefits until you reach full retirement age. If you claim benefits prior to full retirement age and continue to work, one dollar in benefits will be deducted for each two dollars earned above the annual limit ($23,400 in 2025). In the calendar year in which you reach full retirement age, one dollar in benefits will be deducted for each three dollars you earn above a higher annual limit ($62,160 in 2025) until your birthday month. Once you reach full retirement age (66 and 2 months to 67, depending on birth year), any wages earned through employment will not affect your Social Security benefit. Of course, youmust pay Social Security andMedicare payroll taxes on any wages earned through employment. If your benefits are reduced because of these limitations, your benefit will be recalculated after you reach full retirement age, and you will receive credit for any benefits you did not receive because of your earnings.
How Social Security Benefits Are Taxed If your income exceeds certain income thresholds, you may owe federal income tax on up to 50% or 85% of your Social Security benefits. The IRS uses your “combined income” to determine taxability of benefits. Combined income is defined as your adjusted gross income plus any tax-exempt interest (such as interest frommunicipal or savings bonds) plus 50% of your Social Security benefit. If you are married and file a separate tax return, you will probably pay taxes on all your Social Security benefits. In addition, some states may tax Social Security benefits, whereas other states may exempt them from taxation. About 48% of current beneficiaries pay taxes on their Social Security benefits. Source: Social Security Administration, 2024 Taxable portion of benefits 0% $25,000 and under $32,000 and under Up to 50% $25,000 to $34,000 $32,000 to $44,000 Up to 85% Over $34,000 Over $44,000 Married joint filers Single filers
Social Security offers benefits similar to a lifetime pension. Not only does it provide a guaranteed income stream, but it also offers longevity protection, spousal protection, and even some inflation protection. Regardless of your marital status, there are strategies that might increase the lifetime benefits you receive from Social Security. It is also important to understand how the claiming age of each spouse could affect monthly and lifetime benefits. 1 Society of Actuaries, 2024 Will Your Sources of Income Last a Lifetime? At age 65, a healthy man or woman can reasonably expect to spend up to 20 or 30 years in retirement. There is a 63% chance that one member of a couple will live to age 90.1
Maximizing Lifetime and Survivor Benefits A married couple could potentially increase their lifetime benefits — as well as the benefits of a surviving spouse — by claiming Social Security at different ages. This example illustrates three hypothetical claiming scenarios for a married couple, Jane and Paul (both age 62). It looks at potential monthly and lifetime benefits, assuming that Paul dies at age 80 and Jane dies at age 90. Monthly benefit assumptions, based on claiming age: Jane: $1,260 at age 62 or $1,800 at age 67 (full retirement age) Paul: $1,400 at age 62, $2,000 at age 67 (full retirement age), or $2,480 at age 70 Although the couple’s combined benefits at the time of Paul’s death would be highest under Scenario 1, the third scenario would provide the highest lifetime benefits if Jane were to live to age 90. Jane’s monthly survivor benefit would be $1,400 under Scenario 1, $2,000 under Scenario 2, and $2,480 under Scenario 3 — which translates to annual amounts of $16,800, $24,000, and $29,760, respectively. Assumes a full retirement age of 67. This hypothetical example is based on Social Security Administration rules and is used for illustrative purposes only. Actual situations will vary. Scenario 1 Scenario 2 Scenario 3 Both Jane and Paul claim benefits at age 62 Combined monthly benefits: Years 1+: $2,660 Total benefits: $574,560 Monthly survivor benefit: $1,400 Lifetime benefits: $742,560 Jane claims benefits at age 62, Paul waits until age 67 Combined monthly benefits: Years 1 to 5: $1,260 Years 6+: $3,260 Total benefits: $569,040 Monthly survivor benefit: $2,000 Lifetime benefits: $809,040 Jane claims benefits at age 62, Paul waits until age 70 Combined monthly benefits: Years 1 to 8: $1,260 Years 9+: $3,740 Total benefits: $569,760 Monthly survivor benefit: $2,480 Lifetime benefits: $867,360 Paul dies at age 80 Jane dies at age 90
Medicare Health Insurance for Older Americans Medicare is the U.S. government’s health insurance program for citizens age 65 and older, as well as some younger individuals with specific disabilities and illnesses, and families of deceased workers. Generally, to be eligible for Medicare, you need to be age 65 and you (and/or your spouse) must have paid Medicare and Social Security payroll taxes for at least 10 years. The cost for Medicare will depend on your income, the options you choose, and the medical care you need. There are two ways to receive Medicare coverage: Original Medicare or Medicare Advantage. Original Medicare is divided into two parts: Parts A and B. Participants also have the option of purchasing Part D prescription drug coverage as well as Medicare Supplement Insurance (Medigap), which helps fill in coverage gaps. Medicare Advantage (Part C) plans combine Parts A and B, offer other benefits, and often include prescription drug coverage. • Parts A and B are administered by the federal government. • Parts C and D and Medigap are offered by private, Medicare-approved insurance companies. Because Medicare covers a limited amount of skilled nursing facility care (after a three-day hospital stay), there is a common misconception that Medicare will pay for long-term care. However, all costs for long-term care — assisted living, nursing home care, personal assistance at home —must be paid for out of pocket.
Medicare Coverage Options Part C Medicare Advantage These private plans provide benefits and services covered under Parts A and B and may offer additional coverage such as vision, hearing, dental, and/or health and wellness programs. Part C plans often include prescription drug coverage. There is usually a monthly premium in addition to the Part B premium, as well as copayments or coinsurance for covered services. Part D Prescription Drug Coverage These plans help cover the cost of prescription drugs. Participants in Original Medicare Parts A and B — and those enrolled in Medigap or a Part C plan that does not offer prescription drug benefits — can purchase prescription drug coverage for an additional premium. In 2023, Medicare covered about 59 million people ages 65 and older and 7.6 million disabled individuals. Source: Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 2024 Part A Hospital Insurance Helps cover inpatient care in a hospital (but not physicians’ fees), a limited amount of post-hospital care in a skilled nursing facility, hospice care, and some home health care. The annual deductible ($1,676 in 2025) covers hospital stays up to 60 days, after which there are daily copayments for days 61 to 150. Part B Medical Insurance Helps cover physicians’ services, inpatient and outpatient medical services, outpatient hospital care, and diagnostic tests. There are some fairly stiff deductibles, copayments, and limitations. Copays are generally 20% of Medicareapproved amounts.
Medicare Enrollment Enrolling in Medicare can be complicated, with substantial penalties for missing certain deadlines. It is important to become familiar with the enrollment process and rules, not only as you approach age 65 but also if you already have coverage. Initial Enrollment Period To avoid penalties, you should enroll during the initial enrollment period, which starts three months before the month you turn 65 and ends three months after the month you turn 65. Depending on when you enroll, coverage will start on the first day of the month indicated here. If you enroll during the... Coverage starts the... Three months before the month you turn 65 Month you turn 65 Month you turn 65 First month after enrollment First month after you turn 65 First month after enrollment Second or third month after you turn 65 First month after enrollment If you are receiving Social Security, you will be enrolled automatically in Medicare Parts A and B when you turn 65. If you are not receiving Social Security, you must apply for Medicare coverage. If you are still working and have employer-provided health coverage, it makes sense to apply for Medicare Part A when you turn 65, but you don’t have to enroll in Parts B or D, and there is no penalty. The deadline for signing up for Part B (and avoiding higher premiums) is exactly eight months after your final day of employment, regardless of when health benefits end.
General Enrollment Period If you didn’t sign up for Part A and/or Part B when you were first eligible, you can sign up between January 1 and March 31 each year. Your coverage would begin the next month. However, you may have to pay a higher premium for late enrollment. Late Enrollment Penalties • Part A — If you are not eligible for premium-free Part A and didn’t sign up when you were first eligible, your monthly premium may go up 10%. You will have to pay the higher premium for twice the number of years you could have had Part A but didn’t sign up for it. • Part B — If you did not sign up for Part B when you were first eligible, you may have to pay a late enrollment penalty for as long as you have Medicare. Your monthly premium for Part B may go up 10% for each full 12-month period that you could have had Part B but didn’t sign up for it. Annual Open Enrollment Medicare offers an opportunity to make changes during Open Enrollment from October 15 to December 7 each year; changes are effective on January 1. During this open enrollment period, Medicare beneficiaries can do the following: • Change from Original Medicare to a Medicare Advantage plan and back again. • Switch from one Medicare Advantage plan to another Medicare Advantage plan, including switching from a plan that does not offer prescription drug coverage to one that does, and vice versa. • Join a Medicare prescription drug plan, switch from one Medicare prescription drug plan to another, or drop Medicare prescription drug coverage.
Costs Associated with Medicare Medicare does not cover 100% of all health-care costs. Out-of-pocket expenses may include premiums, deductibles, copays, and coinsurance. Costs vary depending on the coverage you choose and the medical services you use. Medicare Premiums Part A is generally premium-free if you or your spouse paid Medicare payroll taxes for at least 10 years. If not, you may pay up to a $518 monthly premium in 2025. Part B premiums are based on modified adjusted gross income (AGI), as reported on your IRS tax return two years before the year for which Medicare premiums are paid. (See facing table.) Part C (Medicare Advantage) premiums vary by plan. Part D premiums also vary by plan, but higher-income individuals must pay an extra charge in addition to the plan’s regular premium. Medigap If you are enrolled in Original Medicare Parts A and B, you have the option of purchasing Medicare Supplement Insurance, or Medigap, which is sold by Medicare-approved private insurers. Medigap policies are designed to help cover the deductibles and copayments that the original program doesn’t cover, but it will not pay for procedures that aren’t covered by Medicare. If you are enrolled in a Medicare Advantage plan, you don’t need (and cannot enroll in) Medigap.
Modifed adjusted gross income single filers Modifed adjusted gross income married joint filers Part B monthly premium Part D monthly premium $106,000 or less $212,000 or less $185.00 Your plan premium $106,001 – $133,000 $212,001 – $266,000 $259.00 $13.70 + your plan premium $133,001 – $167,000 $266,001 – $334,000 $370.00 $35.30 + your plan premium $167,001 – $200,000 $334,001 – $400,000 $480.90 $57.00 + your plan premium $200,001 – $499,999 $400,001 – $749,999 $591.90 $78.60 + your plan premium $500,000 and above $750,000 and above $628.90 $85.80 + your plan premium Medicare Part B and Part D Monthly Premiums (2025) (based on MAGI for 2023 tax year) A 65-year-old couple who retired in 2023 may need about $351,000 to cover their retirement health-care expenses. This estimate is based on the savings needed to cover premiums for Medicare Part B and Part D, Part B and Part D deductibles, premiums for Medigap Plan G, and median out-of-pocket prescription drug expenses in retirement. It does not factor in costs to cover long-term care and other health expenses not covered by Medicare. Source: Employee Benefit Research Institute, 2024 People often underestimate the potential cost of health care in retirement — even with Medicare.
The benefits you receive from Social Security and Medicare could play an important role in retirement. But it might be wise to place a greater emphasis on accumulating sufficient savings and assets to enjoy a comfortable financial future. Prepared by Broadridge Advisor Solutions © 2025 Broadridge Financial Solutions, Inc.
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